Friday May 27, 2005 - 09:47:34 GMT
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INVESTICA Ltd - www.investica.co.uk
Euro waits for French decision
The dollar remained strong during Thursday, pushing through technical support against the Euro. The dollar strengthened to a high just beyond 1.25 and remained strong in New York. The dollar was unable to extend gains in Asia on Friday and drifted to 1.2530. Although there will be uncertainty over the French EU vote, there will also be some pressure to curb long dollar positions ahead of the weekend.
Political Euro-zone concerns will persists ahead of the French EU referendum on Sunday. A no vote would cause significant political stresses within the EU, but the most likely outcome is that the Euro has now discounted the bad news with markets expecting a no vote. A rejection should not, therefore, trigger further aggressive Euro selling unless there is a very large majority against. The currency could rally slightly on Monday and there would be the potential for a more substantial Euro gain if there is a yes vote, although these gains would probably be short lived. There was a small outflow of investment capital from the Euro-zone in March, but this should not have a big impact..
The US first-quarter GDP growth was revised up to 3.5% from 3.1%, primarily due to lower imports, although there was also a lower increase in inventories. The revision was slightly below market expectations, but confidence in the economy should remain strong in the short term. Jobless claims rose marginally to 323,000 in the latest week from 322,000, which suggest that the labour market is broadly firm. The data next week will be important for US economic expectations.
Fed Governor Gramlich stated that further measured US interest rate increases were realistic and there will be strong expectations of 0.25% rate increases continuing at the next Fed meeting at the end of June. Yield considerations will continue to offer dollar support.
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